2016 set economic recovery tone

Kudzanai Gerede Business Correspondent
As 2016 comes to an end, Business Post takes a look at some of the major business highlights that took place during what has been an eventful year in the local economy.

The economy despite slowing down to 0.6 percent growth from the initially projected 2.7 percent stood resilient in the face of innumerable challenges curtailing performance of key sectors of agriculture, mining and manufacturing.

The El Nino induced drought stifled agriculture performance, while antiquated machinery and high production costs across the entire production spectrum rendered the mining and manufacturing sectors uncompetitive hence undermined viability.

This was compounded by what have become perennial impediments such as low rainfall affecting production, weak capital investment and low production to boost export performance.

It was however not all gloomy for the economy with government tackling various institutional and industry specific bottlenecks affecting business through the ease of doing business reforms and other policy measures such as statutory instrument 64 of 2016, special economic zones bill and export incentive scheme among others.

The year started with Government embarking on the second 100 days of the ease of doing business reforms under the Rapid Results Approach (RRA) in an attempt to improve the economy’s competitiveness rating on the global economy.

Speaking at the launch of the second 100 days in February the Chief Secretary to the President and Cabinet, Dr. Misheck Sibanda, said the Ease of Doing Business Reforms had been a critical catalyst for economic growth for countries facing challenges similar to those being experienced in Zimbabwe.

Some of the achievements attained by end of the second 100 days were reducing time taken to register businesses with the Registrar of Companies from 90 days last year to 13 days, setting up an online registration of companies’ platform and a Companies Bill of 2016 which was reviewed in contextual terms to ensure efficiency in the registration processes and coming up with a credit infrastructure comprising of a credit registry to ensure transparency and minimize risks in the financial services sector.

In an interview with Business Post earlier this year economic competitiveness expert Dr Gift Mugano said strides taken by government were critical in improving the country’s competitiveness index rating but called for further reduction of time and costs to compete even with global standards.

“Government has done well to correct areas that were leading to business inefficiency in our economy. This is very critical in improving our competitiveness rating, a barometer any serious investor prioritises before they come and invest. We however need to do more to catch up with the rest of the modernised world,” he said.

His view attested to the country’s slip 4 places on the World Bank’s ease of doing business ranking to 161 while it tumbled one place to 126 out of 138 countries on the World Economic Forum’s Global Competitiveness Index (GCI) released in the second and first half of the year respectively.

The macro-economic environment endured the harsh effects of biting cash and liquidity challenges exacerbated by cash hoarding and externalisation of the American dollar from the domestic economy.

In May Reserve Bank of Zimbabwe Governor Dr John Mangudya announced a raft of measures to stabilise the financial market which included announcing the introduction of the bond notes currency courtesy of the US$ 200 million Afriexim bank facility to be traded at 1: 1 with the American dollar as a way of curbing externalisation of the US dollar from the market and improving liquidity.

The bond notes which are yet to be exhausted into the economy are an export incentive meant to attract exporters and earn the country foreign currency to sustain its multi-currency system.

The cash impasse resulted in the championing of point of sale (POS) and automated teller machines (ATMs) and mobile money transfers in order to improve transaction volumes to foster business activity.

The move has seen an increase in plastic money usage in the country with Finance Minister Patrick Chinamasa while addressing senate in June pointing out that by mid-June plastic money usage had upped 400 percent in just five weeks after the announcements in May by Dr Mangudya

One of the major milestones government undertook in 2016 was the bold decision to impose import restrictions to boost its ailing industries that were being outmanoeuvred by cheaper import products on the domestic market.

The introduction of Statutory Instrument 64 of 2016 (SI 64) gazetted on 17 June saw a list of 112 priority products such as coffee and body creams, furniture, baked beans, bottled water, macaroni, mayonnaise and various building materials removed from the Open General Import License (OGIL) to give locally manufactured goods market space.

SI 64 was credited for scaling up capacity utilisation in the manufacturing sector to 47.4 percent in 2016 from 34.3 recorded last year, thus according to the 2016 CZI state of the manufacturing sector report.

The report highlighted several challenges to the sector such as high cost of labour and tariffs while most firms were said to be using antiquated machinery a trend that was affecting production efficiency.

Analysts applauded government stance on SI64 citing that it brought about a wind of change particularly in the mealie meal and cooking oil sub-sectors which saw local products almost reaching 100 percent market presence.

The year also saw the completion of the US$40 million Willowton Mutare cooking oil plant which was completed in September as the company sought to maintain its market share for the D’lite brand.

The project initially projected about 100 jobs for the local community and expected to bring business in the eastern province through various industrial value chains.

Capital constraints however remained a major challenge to the resuscitation of industry with FDI flows plummeting to just above US$ 550 million in 2016.

Government in its pursuit of re-engagement with international financiers made a major stride towards payment of arrears to cap its external debt. In October, Government cleared its arrears with the International Monetary Fund amounting to US$ 107.9 million.

“We have been in the trenches far too long and I’m glad we are coming out from the woods one step at a time. This (payment) is a huge statement to our commitment towards repayment of our debts and we would want to assume the privileges of accessing credit as a member of the IMF once we clear our dues,” Patrick Chinamasa told Business Post on the sidelines of the post budget meeting recently held in Harare.

Government also made various efforts to improve the country’s investment portfolio by finalizing the special economic zones (SEZ) bill signed into law by the President in November while hosting a Chinese business delegation that had come as a follow up to the Chinese president visit last year.

Special economic zones are expected to lure investment as government has put in place a host of incentives for prospective investors such as tax holidays and reduced duty for raw materials.

Bulawayo, Harare’s Sunway city, Mutare, Victoria Falls and Lupane are some of the areas identified as SEZ specializing in leather products, heavy manufacturing industries, tourism, gas exploration and mining among other activities.

The investment conference in July organised by Africa Confidential under the theme , “Zimbabwe 2016, Rebuilding and Rebooting” which took part in London was a historic event which saw re-engagement talks between Zimbabwe and her erstwhile colonizer Britain discuss economic areas in over 20 years.

According to Dr Mangudya, the visit to the British capital was symbolic of a new chapter in the country’s rebound into the international community.

This was to be followed by the Bi-National Commission meeting which took place from 2-5 November between Zimbabwe and South Africa that saw President Jacob Zuma descending into the country as the two neighbors seek to encourage investment.

The meeting of Head of States succeeded the inter ministerial meetings between the two nations which were co- chaired by Foreign Affairs minister, Simbarashe Mumbengegwi and South African counterpart Mrs Maite Nkoane Mashabane leading to the signing of 38 cooperation agreements in areas ranging from transport, tourism, trade and investment, immigration, health and science.

The housing and construction sector got a major boost following the launch of the National Building Society (NBS) by the National Social Security Authority (NSSA) in May expected to yield housing to millions of home seekers in the country at a time when the construction industry has been subdued owing to high cost of mortgage lending.

The NBS which started with a US$25 million capitalisation float was earmarked for low income earners who seldom afforded mortgage lending from financial institutions.

The interest rates for first time home owners were pegged at a reasonable 9.5 percent with the maximum being 11 percent for those who already have houses for a period of 25 years.

“There is going to be preferential pricing for first time home owners and therefore we are looking at high volumes and lower margins,” NBS managing director Mr Ken Chitando told delegates at the official opening of the bank in Harare.

In the mining sector, Government finalised the consolidation of diamond mining company, Zimbabwe Consolidated Diamond Company (ZCDC) following the removal of six joint venture companies that were swindling government of proceeds from the diamonds fields.

In an interview on BBC’s Hard Talk, Finance minister Patrick Chinamasa said the state lost a purported US$ 15 billion through under pricing and under invoicing of diamond sales, a case that many African governments are falling victim to.

This was the key message echoed by the Kimberly Certification Chair, Mr Ahmed Bin Sulayem of the United Arab Emirates on his visit to the country early October in a familiarization tour of the Chiyadzwa diamond fields.

“The mines in Marange are in one of the best conditions compared to other mines in Africa,” said Mr Ahmed Bin Sulayem after touring the diamond mines.

Mr Sulayem was impressed with the structural developments undertaken by government in the diamond sector which not only ensured transparency and accountability but value addition for the benefit and improvement of local communities through employment creation.

Mr Ahmed Bin Sulayem assured Zimbabwe that the KPCS will organise workshops on validation processes before the November plenary meeting to ensure developing countries are not robbed of their resources.

The gold sub sector saw output grow to 22 tonnes up from 20 tonnes recorded in 2015.

The growth was mainly spurred by Central bank support to small scale miners through initiatives such as the US$ 20 million facility and the US$ 5 million equipment loan facility to small-scale gold miners signed between government of Zimbabwe and China Development Bank through a company called XCMG.

As the year came to an end, the finance minister tabled the 2017 National Budget which set the tone for the 2017 fiscal year, with several improvements applauded such as the reduction of the fiscal deficit from last year’s US$ 1.1 billion to US$ 400 million.

This is expected to trim the funding gap as financing sourcing for industry is likely to be crucial going forward.